Buy ICICI Bank; target of Rs 355: Motilal Oswal

Motilal Oswal's research report on ICICI Bank

ICICIBC reported 2QFY18 PAT of INR20.6b (19% miss), affected by elevated provisions; however, stable margins, in-line slippages and an improvement in the coverage ratio provided comfort. NII grew 9% YoY to INR57.09b (1.5% beat), while core fee growth remained soft at 9% YoY. NIM held stable at 3.27%, and management maintained its >3% NIM guidance for FY18. Business growth picked up, with the advances portfolio growing 4% QoQ (flattish in 1QFY18), led by continued traction in retail loans (+19% YoY; ~54% of total loans), and the corporate portfolio growing 5.6% QoQ. Deposit growth, however, stood modest at 2.5% QoQ, even as SA deposits maintained healthy traction (+21% YoY/5% QoQ). CASA mix improved 50bp QoQ to 49.5% (avg. CASA mix at 45.2%).  Asset quality held largely stable, with GNPLs rising 3% QoQ, but net NPLs declining 4.6% QoQ. PCR improved by 440bp QoQ to ~46%. Fresh slippages stood at INR46.74b (in-line, INR22.87b from one oil & gas account, INR8.79b from a central PSU power company, and INR6.6b from retail), while o/s restructured loans declined to INR20.29b (-14% QoQ; 0.4% of loans).  ICICIBC has made the entire balance provision of INR6.51b toward the NCLT accounts, while it has disclosed exposure of INR104.76b (98.7% already NPL, non-fund exposure of INR13.84b) toward the second RBI list comprising 18 accounts. The bank carries provisions of 31.5% toward these accounts.

Outlook
While credit cost is likely to stay elevated in the near term (NPL ageing + requirement toward the second list), we expect it to moderate from FY19, enabling ICICIBC to deliver ~12% RoE by FY20E. We reiterate Buy with an SOTP of INR355, which corresponds to 1.8x Sep-19E ABV for the standalone bank. Subs and associates account for ~33% of our target valuation. Progress on asset resolution via NCLT remains a key trigger, while impending divergence notification remains an overhang. For all recommendations report, click here

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